Which of the following strengthens the possibility that the airline market is a contestable market?
A)Since other airlines can enter the market at no cost and charge lower fares,the fare charged by a single airline is always equal to the marginal cost.
B)The barriers to entry in the airline market lead to nonprice competition between the airlines operating in the market.
C)The fares that are charged for routes with more than one airline are significantly higher than the fares charged for a route with only one airline.
D)Airlines regularly charge fares that are above the competitive levels irrespective of the number of airlines plying a particular route.

Question

Quizplus · Accepted Answer

The fact that other airlines can enter the market at no cost and charge lower fares suggests that there are no significant barriers to entry in the market, which is a key characteristic of a contestable market. In a contestable market, the threat of entry by new firms keeps incumbent firms from earning monopoly profits, and prices are generally equal to marginal cost. Therefore, choice A strengthens the possibility that the airline market is a contestable market. Choices B, C, and D, however, do not necessarily imply that the market is contestable, as they do not address the issue of potential entry or the absence of barriers to entry.

Which of the Following Strengthens the Possibility That the Airline